Explanatory Memorandum
(Circulated by the authority of the Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)Chapter 11 Winding down and ending of mining and pre-mining project interests
Outline of chapter
11.1 This chapter deals with things that become relevant towards the end of a mining or pre-mining project interest's life.
11.2 All legislative references throughout this chapter are to the Minerals Resource Rent Tax Bill 2011 unless otherwise indicated.
Summary of new law
11.3 The Minerals Resource Rent Tax (MRRT) recognises that, towards the end of an interest's life, the activities of the interest will change. From that time on, special rules treat the interest differently.
Suspension day
11.4 The suspension day for a mining project interest is the earliest of:
- •
- the day chosen by the miner (after commercial production has ceased);
- •
- ten years after commercial production most recently took place; and
- •
- the termination day.
11.5 The suspension day has the effect of cancelling allowance components and providing access to the rehabilitation tax offset.
Rehabilitation tax offset
11.6 An entity is entitled to the refundable rehabilitation tax offset if it has a rehabilitation tax offset amount for one or more of its mining project interests or pre-mining project interests and the entity has paid MRRT for a previous year or has MRRT liabilities for the current year.
11.7 An entity has a rehabilitation tax offset amount for a mining project interest if:
- •
- the suspension day for the interest has occurred;
- •
- upstream rehabilitation expenditure has been incurred in relation to the interest for the year;
- •
- the expenditure cannot be applied against mining revenue of the interest or mining profit of another interest; and
- •
- there has been an MRRT liability for the interest for an MRRT year (regardless of which entity had the interest when the liability arose).
Termination day
11.8 The termination day for a mining project interest is the day no entity has the mining project interest. From the termination day onwards, the last entity to have the interest before it ended is taken to continue to have it for the purpose of accounting for the MRRT. Therefore, the interest will still be capable of having mining revenue, mining expenditure and allowance components.
Pre-mining project interests
11.9 Pre-mining project interests do not have suspension days. They do, however, have termination days. The termination day for a pre-mining project interest is the day no entity holds the pre-mining project interest. The termination day for a pre-mining project interest has the same effect as the suspension and termination days have for a mining project interest.
Detailed explanation of new law
Suspension day
11.10 The suspension day for a mining project interest is a point in the life of a mining project interest from which the interest is taken to be drawing to a close.
11.11 The suspension day for a mining project interest is the earliest of:
- •
- the day chosen by the miner (after commercial production has ceased);
- •
- the day 10 years after commercial production most recently took place; and
- •
- the termination day.
[Subsection 130-10(1)]
11.12 If more than one of the events happen in relation to the mining project interest, the suspension day falls on the earliest day.
Day chosen by the miner
11.13 A miner may choose the suspension day for a mining project interest, provided commercial production of taxable resources from the project area for the interest has ceased. [Paragraph 130-10(1)(a) and subsection 130-10(2)]
11.14 All the general rules for making a choice under the MRRT apply to this choice. In addition, the miner must notify the Commissioner of Taxation (Commissioner) of the choice. [Subsection 130-10(4) and Schedule 1 to the Minerals Resource Rent Tax (Consequential Amendments and Transitional Provisions) Bill 2011 (MRRT (CA & TP) Bill ); item 8, Division 119 of Schedule 1 to the Taxation Administration Act 1953 (TAA 1953)]
Ten years after commercial production
11.15 The suspension day for a mining project interest may be the day occurring 10 years after the most recent day on which commercial production of taxable resources took place from the project area. [Paragraph 130-10(1)(b)]
Commercial production
11.16 'Commercial production' takes its ordinary meaning. However, there are certain factors that must be taken into account when considering whether commercial production of taxable resources takes place from a project area.
11.17 The factors that must be taken into account are:
- •
- past and current production of taxable resources;
- •
- past and current expenditure relating to the upstream mining operations; and
- •
- the extent to which upstream mine equipment has been decommissioned.
[Subsection 130-10(3)]
11.18 Other factors that may be relevant in determining when commercial production of taxable resources is taking place include:
- •
- implementation of closure plans;
- •
- demolition and removal of infrastructure;
- •
- reshaping of remaining mining landforms;
- •
- completion of rehabilitation and remediation processes; and
- •
- monitoring, measuring and reporting on the performance of closure activities.
11.19 In assessing whether there is commercial production, each situation turns on its own particular facts and no one factor is decisive. All factors must be considered in combination and as a whole. Whether there is commercial production will depend on the larger or general impression gained and whether it has a commercial flavour.
Example 11.130 : Commercial production has ceased
Durpy Limited announces the premature closure of its Gaullcos coal mine (a mining project interest) on 10 July 2013. Following the announcement, Durpy Limited commenced preparation of a detailed mine site rehabilitation plan. The rehabilitation plan included the following activities:
- •
- decommissioning and removing plant and equipment;
- •
- retaining all mined materials on site and a rehabilitated storage area;
- •
- ensuring effective waste management;
- •
- re-contouring and revegetating the land; and
- •
- ongoing monitoring of soil and water conditions.
The rehabilitation plan will be implemented over 10 years and rehabilitation work begins on 16 December 2013. Consistent with the rehabilitation plan, commercial production from the Gaullcos coal mine ceases on 1 September 2014.
From 1 September 2014, Durpy Limited can choose a suspension day. If Durpy Limited does not make such a choice, the suspension day for the mining project interest will be 1 September 2024, or the termination day of the mining project interest, whichever occurs first.
11.20 Commercial production can cease at a mine well before a mine formally closes and before the mining lease has been relinquished.
11.21 In some circumstances, ceasing commercial production may only be temporary, or the mine may enter a period of care and maintenance. Provided the cessation of commercial production does not exceed 10 years (and the miner does not choose a suspension day), it will not result in a suspension day for the mining project interest.
Example 11.131 : Care and maintenance
Colecoal Resources Limited operates the Pertep coal mine (a mining project interest). The Pertep mine produces 1 million tonnes a year. Due to an economic downturn, Colecoal places the Pertep coal mine under a care and maintenance program. As part of the care and maintenance program, coal production stops on 29 June 2013.
On 29 June 2023, the Pertep mine remains in a care and maintenance program. This will be the suspension day for the mining project interest because it is now 10 years since the last commercial production from the mine.
Recommencing commercial production
11.22 If commercial production recommences before a suspension day for a mining project interest has occurred, there is no consequence, the mining project interest will continue.
11.23 However, if a suspension day has occurred for a mining project interest and the miner undertakes upstream mining operations with a view to recommencing commercial production from the project area for the mining project interest, the interest will be taken to have ceased and a new interest will be taken to have started. The deemed cessation will be a termination day for the old interest. [Subsection 130-20(1)]
11.24 The deemed cessation of the old interest and the deemed creation of the new interest is not a mining project transfer. [Subsection 130-20(2)]
Example 11.132 : Recommencing commercial production
Rexneilad Limited operates the Nanihall iron ore mine. As at 11 July 2012, the upstream mining operations of the Nanihall iron ore mine:
- •
- employed 1,000 people;
- •
- operated 500 trucks;
- •
- had annual operating expenditure of $50 million;
- •
- had $1 billion of capital; and
- •
- produced 10 million tonnes of iron ore a year.
Iron ore production from the Nanihall mine steadily declines to 1 million tonnes a year in 2013. On 24 December 2013, Rexneilad decides to close the mine and begins rehabilitation of the mine site.
On 12 May 2024, the world iron ore price triples and Rexneilad decides to recommence mining. By the end of that year, it:
- •
- employs 500 people;
- •
- operates 250 trucks;
- •
- has operating expenditure of $40 million; and
- •
- produces 5 million tonnes of iron ore.
By the end of 2025, production has increased to 15 million tonnes.
On 8 December 2026, iron ore prices return to long term averages and Rexneilad stops producing iron ore and restarts mine site rehabilitation.
Rexneilad, after taking into account all the relevant factors including past production, expenditure and use of mining equipment, determines that commercial production ceased (sometime on or before 24 December 2013). On 12 May 2024, Rexneilad started undertaking upstream mining operations with a view to recommencing commercial production. Commercial production ceased for a second time on 8 December 2026.
A suspension day occurs for the interest because there was no commercial production for 10 years (24 December 2013 to 24 December 2023). When Rexneilad decided to recommence commercial production, on 12 May 2024, the interest is taken to have ceased and a new mining project interest is taken to exist. Therefore, the production from 12 May 2024 is an activity of the new mining project interest.
Termination day
11.25 The termination day for a mining project interest is the day on which there is no longer any entity that has the interest [section 135-5] . The termination day may also give rise to the suspension day, if the miner no longer has the interest and a suspension day for the interest has not already occurred [paragraph 130-10(1)(c)] .
11.26 The concept of a termination day is discussed in further detail below. Generally it is the day on which the mining venture or the production right giving rise to a mining project interest no longer exists.
Effect of suspension
11.27 The suspension day is a point in the life of a mining project interest that represents the winding down of the interest. There are two consequences of an interest being suspended.
11.28 First, allowance components can no longer be carried forward and uplifted and, second, rehabilitation tax offsets may be available. [Section 130-15 and Division 225]
Cancelling allowance components
11.29 Allowance components are not intended to be carried forward and uplifted indefinitely. The uplift rate reflects the possibility that a miner may not get to use its allowance components.
11.30 The suspension day signals a new phase of a mining project interest, that is, the beginning of the end (or the end, if the suspension day is also the termination day).
11.31 From the suspension day onwards, the mining project interest will be less likely to be producing amounts of taxable resources and consequently less likely to have mining profits against which its allowance components can be applied.
11.32 A mining project interest that has had a suspension day will still accrue allowance components within each year and will be able to apply those allowances against mining profits for the year, be those its own or those of a related mining project interest.
11.33 In the year in which the suspension day occurs, the mining project interest can use all its allowance components carried forward from a previous year and those that have arisen in the current MRRT year. The interest must apply the allowance components against its mining profit or the components may form part of a transferred allowance for use by another interest. The allowance components that remain unapplied at the end of that year are cancelled. That is, they are not carried forward for use in a future year. [Paragraph 130-15(a)]
11.34 In an MRRT year after the MRRT year in which the suspension day for a mining project interest occurred, allowance components will still arise for the interest and they will be available for use at the end of the year. However, any allowance components that cannot be applied in that year are cancelled and cannot be carried forward. [Paragraph 130-15(b)]
11.35 Beyond the cancellation of the allowance components (and the access to the rehabilitation tax offset which is discussed below), the mining project interest is otherwise unaffected by having a suspension day.
11.36 The interest would continue to exist and the miner would still be liable to pay MRRT. A mining project interest will still be able to accrue allowance components within each year (including starting base allowances and transferred allowances) and have the ability to use them at the end of each year (whether against their mining profit or transferred for use against another interest's mining profit). But any unapplied allowance components (including pre-mining losses attaching to the mining project interest) will be cancelled at the end of the year and not carried forward to the next MRRT year.
Example 11.133 : Cancellation of allowance components
Miner A has two mining project interests, MPI 1 and MPI 2. Commercial production has ceased from MPI 1. The miner makes a choice that 1 October 2015 will be the suspension day for the MPI 1.
At this time, there are $100 million of mining loss allowances that have been carried forward from previous years in relation to MPI 1. At the end of the MRRT year (30 June 2016) MPI 1 has a $30 million mining profit. MPI 1 uses $30 million of the mining losses to reduce its profit to zero. MPI 2 can absorb $40 million of MPI 1's mining losses. Therefore, MPI 1 transfers $40 million of the losses to MPI 2 for use as a transferred mining loss allowance.
MPI 1's remaining $30 million of mining losses cannot be applied for the year. These mining losses are cancelled.
Rehabilitation tax offset
11.37 Rehabilitating a mine site is a necessary condition that is attached to most, if not all, production rights. Some rehabilitation may be undertaken throughout the life of a mining project interest. However, most is commonly undertaken towards the end of the mine's life.
11.38 Throughout the life of a mining project interest, rehabilitation expenditure, to the extent it relates to upstream mining operations, is mining expenditure that is deductible [sections 35-10 to 35-20] . If mining expenditure exceeds mining revenue, a mining project interest makes a mining loss for an MRRT year [subsection 75-20(1)] . Mining losses can therefore be attributable to rehabilitation expenditure.
11.39 While the rehabilitation expenditure is mining expenditure, the time at which it is mostly incurred makes it less likely that the interest will have mining revenue against which the expenditure can be applied. To recognise this, the expenditure may give rise to a rehabilitation tax offset.
Entitlement to a rehabilitation tax offset
11.40 The rehabilitation tax offset is an amount claimed by the miner for an MRRT year. It is an entity level offset and not an offset that is applied against the individual MRRT liabilities of the mining project interests. However, the amount of the offset that the miner is entitled to is determined by reference to the rehabilitation tax offset amounts for each relevant mining project interest. [Section 225-10]
11.41 A miner is only entitled to a rehabilitation tax offset for an MRRT year if:
- •
- it is, or has been, liable to pay MRRT for any MRRT year [subsection 225-10(2)] ; and
- •
- it has a rehabilitation tax offset amount for a mining project interest [subsection 225-10(1)] .
Amount of a rehabilitation tax offset
11.42 If a miner is entitled to a rehabilitation tax offset amount for an MRRT year, the amount of the offset is equal to the sum of all the rehabilitation tax offset amounts that the miner has for its mining project interests. [Paragraph 225-10(3)(a)]
11.43 However, the amount of the rehabilitation tax offset that a miner is entitled to for an MRRT year cannot exceed the total MRRT that the miner is or has been liable to pay, in relation to any mining project interest that it has ever had (reduced to take into account the miner's entitlements to offsets). [Paragraph 225-10(3)(b)]
11.44 The offsets that are taken into account in reducing total MRRT liabilities are any:
- •
- rehabilitation tax offsets for a previous year [subparagraph 225-10(3)(b)(i)] ; and
- •
- any low-profit offset the miner is entitled to for the current year [subparagraph 225-10(3)(b)(ii)] .
11.45 This limits the miner's ability to claim a refundable tax offset if the miner has liabilities (in the current or previous years) which have been previously offset.
11.46 The rehabilitation tax offset reduces the miner's liability to pay MRRT for the year [subsection 225-25(1)] . If the offset exceeds the amount of MRRT the miner is liable to pay in any particular year, the Commissioner will pay the excess to the miner (provided the miner has no other outstanding tax liabilities) [subsections 225-25(2) and (3)] . Therefore, the rehabilitation tax offset is a refundable tax offset.
Joint and several liability
11.47 When determining the amount of MRRT that a miner is or has been liable to pay, there are some instances in which one or more entities other than the miner may be responsible for discharging the miner's liability. This occurs where the entities have, or are taken to have, joint and several liability. For example, if the head company of an MRRT consolidated group does not pay its MRRT liability, all the members of the group are jointly and severally liable for that liability.
11.48 To ensure that a single liability is not counted by two or more entities when working out their respective rehabilitation tax offsets, only the primary entity is taken to have the liability, regardless of which entity actually pays the debt. [Subsection 225-10(4)]
Rehabilitation tax offset amount for a mining project interest
11.49 A miner has a rehabilitation tax offset amount for a mining project interest for a year if:
- •
- there was an MRRT liability for the interest for a previous year [subsection 225-15(2)] ;
- •
- the suspension day for the mining project interest has occurred [paragraph 225-15(1)(a)] ;
- •
- rehabilitation expenditure was incurred for the interest for the year [paragraph 225-15(1)(b)] ; and
- •
- a mining loss for the current year is cancelled as a result of the suspension day having occurred [paragraph 225-15(1)(c)] .
11.50 The rehabilitation tax offset amount for an interest is the allowable rehabilitation expenditure multiplied by the MRRT rate. However, the rehabilitation tax offset amount cannot exceed the total MRRT liabilities for the mining project interest (for any year, payable by any miner). [Subsections 225-15(3) and (4)]
11.51 This ensures that a rehabilitation tax offset amount for a mining project interest cannot be greater than the MRRT liabilities that relate to the interest.
Allowable rehabilitation expenditure
11.52 The allowable rehabilitation expenditure is the lesser of:
- •
- the sum of all the upstream rehabilitation expenditure incurred in relation to the mining project interest for the year [paragraph 225-15(3)(a)] ; and
- •
- the amount of mining loss for the current MRRT year that was cancelled as a result of the suspension day having occurred [paragraph 225-15(3)(b)] .
11.53 This means that the miner's rehabilitation tax offset amount for a mining project interest, only represents rehabilitation expenditure that has been unable to be applied for the year.
Example 11.134 : Allowable rehabilitation expenditure
Lyon Resources has a mining project interest that has had a suspension day. For the 2018 MRRT year, Lyon incurred $27 million on upstream rehabilitation expenditure. The interest has a $50 million mining loss for the year. Lyon is required to transfer $10 million of the loss to a related interest but the remaining $40 million cannot be used. The $40 million mining loss is cancelled. The allowable rehabilitation expenditure for the interest for the year will be $27 million (being the lesser of $27 million and $40 million).
The rehabilitation tax offset amount for the interest is $6.075 million (being the allowable rehabilitation expenditure multiplied by the MRRT rate).
Upstream rehabilitation expenditure
11.54 The upstream rehabilitation expenditure that can give rise to a rehabilitation tax offset amount comprises any expenditure on rehabilitating the project area for the mining project interest or any other area affected by an upstream activity. Expenditure cannot give rise to a rehabilitation tax offset to the extent that it relates to rehabilitating areas affected by downstream activities. [Paragraph 225-15(1)(b]
11.55 To be upstream rehabilitation expenditure, the expenditure must be:
- •
- included as mining expenditure for the interest for the year [subparagraph 225-15(1)(b)(i)] ; and
- •
- necessarily incurred in carrying on mining operations that are rehabilitation activities, or activities done in furtherance of that rehabilitation [subparagraph 225-15(1)(b)(ii) and paragraphs 35-20(2)(f) and (h)] .
11.56 The first requirement brings in all mining expenditure for the year. The second requirement limits it to the expenditure relating to rehabilitation.
Example 11.135
ReakesFox Resources Limited intends to close down the Surajeeve iron ore mine (a mining project interest). ReakesFox Resources engages an environmental scientist to assist with the rehabilitation of the mine site, being the area affected by the upstream mining operations. The environmental scientist works only on rehabilitating the Surajeeve mine.
The costs of employing the scientist are necessarily incurred in carrying on upstream rehabilitation activities of the mining project interest.
11.57 Further examples of upstream rehabilitation expenditure can be found in Chapter 5.
Termination day
11.58 A termination day occurs for a mining project interest when no entity has the mining project interest [section 135-5] . A change in the identity of the miner who has the interest will not result in a termination day. However, it will result in a mining project transfer or a mining project split.
11.59 The most obvious time that no entity will have an interest is when there is no longer any production right. However, the cessation of a mining venture may also give rise to no entity having a particular mining project interest.
Example 11.136 : Production right ends
A miner has a mining project interest because it holds a production right. The production right expires and is not renewed. This will be the termination day for the mining project interest.
11.60 Whether an interest has ceased to exist should be determined by considering the facts and determining whether the facts fall within the definition of a mining project interest.
11.61 If a suspension day for the mining project interest has not already happened, the termination day will also be the suspension day. [Paragraph 130-10(1)(c)]
11.62 As discussed above, a mining project interest will be deemed to cease if the miner decides to recommence commercial production after the suspension day for the interest has occurred. This will be the termination day for the mining project interest (if it has not already had one). [Subsection 130-20(1)]
No termination day
11.63 A termination day does not occur merely because:
- •
- there is a change to, or renewal of, the production right;
- •
- there is a change to, or renewal of, the mining venture; or
- •
- there is a mining project transfer or mining project split.
[Sections 135-10, 135-15 and 135-20]
Change to, or renewal of, the production right
11.64 A termination day does not occur merely because there is a change to or renewal of the production right to which the mining project interest relates. [Subsection 135-10(1)]
11.65 Production rights typically run for a defined period of time. However, the various mining laws provide for the rights to be renewed (see, for example, section 147 of the Mineral Resources Act 1989 (Qld), section 113 of the Mining Act 1992 (NSW) and section 78 of the Mining Act 1978 (WA)). Similar provisions exist to allow production rights to be changed. The conditions that are attached to the right or the area covered by the right may change.
11.66 When there is a change to, or renewal of, the production right that relates to the mining project interest, the change or renewal does not result in a termination day. [Section 135-10]
11.67 However, if there is an additional area when a production right changes, or is renewed, the additional area does not form part of the mining project interest and forms part of a different mining project interest. [Subsection 135-10(2)]
11.68 If production rights could be expanded, this would be a way of circumventing the combination rules and, effectively, opening up transferability of otherwise quarantined allowance components.
Example 11.137 : Additional area
RTIG Co has a mining project interest in respect of a production right. In 2014, the production right is altered to include a small area adjacent to the production right.
The mining project interest that relates to the production right does not include the additional area. RTIG Co will have a new mining project interest in respect of the additional area.
Change to, or renewal of, a mining venture
11.69 Similarly, a termination day does not occur merely because there is a change or renewal of the mining venture to which the mining project interest relates. [Section 135-15]
11.70 This rule ensures there is a continuation of the mining project interest when there are changes to, or a renewal of, a mining venture.
11.71 Circumstances which should not result in the termination of a mining project interest are:
- •
- a change to the entities who are participating in the mining venture;
- •
- minor changes to the terms of the mining venture; and
- •
- an extension to the term of the mining venture (renewal).
Example 11.138 : No termination where mining venture extended
Queen Co and Duke Resources have a mining venture to extract taxable resources from an area covered by a production right. They each have a mining project interest in respect of their share of output from the mining venture. Queen is the production right holder.
The mining venture is for a limited period of three years. Due to bad weather, production has not met expectations and it is going to take another year to complete the mining venture. Queen and Duke agree to extend the mining venture for an extra year.
The extension of the mining venture does not result in the termination of the mining project interest.
11.72 This rule is not designed to ensure continuity when the mining venture has substantially changed to the extent that the mining venture can be characterised as a different mining venture.
11.73 If the mining venture changes and the change results in the mining venture covering an additional area, this would result in the miner being entitled to a further extent and there would be a new mining project interest in respect of that extent. [Subsection 15-5(5)]
Mining project transfer and mining project splits
11.74 A mining project transfer or mining project split does not result in a termination day for the mining project interest [section 135-15] . There is a continuation of a mining project interest if it is subject to a transfer or split [subsections 120-10(2) and 125-10(2)] .
Effect of termination
11.75 Even though a mining project interest has had a termination day, the MRRT still operates as usual in respect of that interest. This is achieved by deeming the entity who had the mining project interest when the termination day occurred to continue to have the interest after the termination day. [Subsection 135-25(1)]
11.76 If the entity that last had the interest is no longer a miner, which will be the case if the interest in respect of which the termination day occurred was the only mining project interest that the entity has, that entity will be deemed to be a miner. [Subsection 135-25(2)]
11.77 These rules ensure that, if a mining revenue event occurs after the termination day, the fact that the interest has ended does not result in the mining revenue escaping taxation.
11.78 If a miner extracts taxable resources from a project area but the mining project interest has a termination day before the miner sells the resources, there is still mining revenue despite the interest having ended. All future royalties incurred in respect of those resources are also recognised. Similarly, mining expenditure that is incurred in carrying on mining operations for the interest after the termination day is recognised even if the termination day has occurred before the expenditure is incurred.
11.79 There is nothing stopping a starting base loss arising for a mining project interest that has had a termination day. However, the starting base asset giving rise to the loss would still need to be used in relation to the upstream mining operations of the interest. If there is insufficient remaining profit to offset the starting base loss at the end of the MRRT year, the loss will be cancelled. [Division 90 and section 130-15]
11.80 The effects of the suspension day continue to apply to the interest after it has had a termination day. All allowance components are cancelled at the end of each year and the miner may have a rehabilitation tax offset amount in respect of the mining project interest.
Pre-mining project interests
11.81 Like mining project interests, there are special rules to deal with the operation of the MRRT in respect of pre-mining project interests that are nearing the end of their lives.
11.82 Generally, the rules for pre-mining project interests mirror those for mining project interests. However, there are some differences.
Suspension day
11.83 There is no suspension day for a pre-mining project interest. Of the three events that cause a suspension day for a mining project interest, the termination day is the only one relevant for pre-mining project interest, as such interests would never satisfy the commercial production threshold.
11.84 Therefore, allowance components are cancelled, and access to the rehabilitation tax offset arises, from the termination day for the pre-mining project interest.
Termination day
11.85 There will be a termination day for a pre-mining project interest when no entity holds the interest. [Section 155-5]
11.86 The termination day generally occurs when the exploration right that gives rise to the pre-mining project interest no longer exists. For example, it may have expired.
11.87 Similar to the rules for termination of mining project interests, a termination day will not occur for a pre-mining project interest merely because:
- •
- there is a change to, or renewal of, the exploration right; or
- •
- there is a pre-mining project transfer or split.
[Sections 155-10 and 155-15]
Change to, or renewal of, an exploration right
11.88 A termination day does not occur if there is a change to or renewal of the exploration right to which a pre-mining project interest relates [subsection 155-10(1)] . Unlike mining project interests, there is no similar provision for changes to mining ventures, as mining ventures are not relevant to an entity having a pre-mining project interests.
11.89 If the varied or renewed exploration right results in the pre-mining project interest covering an additional area, it needs to be determined whether that additional area is insignificant. [Subsection 155-10(2)]
11.90 The insignificant area test is only relevant to changes to pre-mining project interests (not mining project interests). The insignificant area test seeks to recognise two things. First, alterations of an insignificant nature are frequently made to exploration rights (as distinct from production rights). Second, pre-mining project interests do not have starting base loss allowances and therefore the risk of insignificant changes to an exploration right resulting in the opening up of otherwise quarantined allowance components is relatively low.
Insignificant additional area
11.91 'Insignificant' takes its ordinary meaning. In determining whether an additional area is insignificant, the 'additional area' includes all previous additional areas that have been included in the project area as a result of changes to, or renewals of, the exploration right. This requires all the additional areas to be added together and an assessment made as to whether, when taken together, they constitute a significant change to the area covered by the original exploration right. [Subsection 155-10(3)]
Example 11.139 : Determining insignificance of an additional area
RTIG Co holds a pre-mining project interest. In 2014, the exploration right is altered to include a small area adjacent to the original exploration right (on the right).
There have been other changes to the exploration right over the past 12 months (the striped areas). When considering whether the latest addition is insignificant, all the other previous insignificant additions are also taken into account.
While the most recent addition to the area may be insignificant by itself, the test requires all the previous insignificant additional areas to be added together and assessed, collectively, as to whether they constitute an insignificant change.
Taking into account the two previous insignificant additions, as well as the most recent addition, the collective area is not insignificant and therefore the most recent addition is an area of another pre-mining project interest.
11.92 If the additional area is insignificant, that additional area will form part of the pre-mining project interest. [Paragraph 155-10(2)(a)]
11.93 However, if the additional area is a significant area, the additional area that is the subject of the most recent change or renewal will be a different pre-mining project interest. [Paragraph 155-10(2)(b)]
Pre-mining project transfers and pre-mining project splits
11.94 A pre-mining project transfer or pre-mining project split does not result in a termination day for a pre-mining project interest [section 155-15] . There is a continuation of a pre-mining project interest if it is subject to a transfer or split [subsections 145-10(1) and 150-10(1)] .
Effects of termination
11.95 Like mining project interests, a pre-mining project interest is taken to continue to be held after the termination day by the last entity to hold it. [Section 155-20]
11.96 For the most part, the MRRT continues to operate in respect of such a pre-mining project interest in the usual way. There are some exceptions.
11.97 From the termination day for the pre-mining project interest, the interest:
- •
- has all its allowance components cancelled [section 155-25] ; and
- •
- may have a rehabilitation tax offset amount [paragraph 225-20(1)(a)] .
11.98 The termination day for a pre-mining project interest has the same effect for the pre-mining project interest as a suspension day has for a mining project interest. That is, from the termination day onwards, allowance components of the pre-mining project interest cannot be carried forward and uplifted but the entity may have a rehabilitation tax offset amount for the interest.
11.99 However, there is an exception. The effects of termination do not apply if the termination day for the pre-mining project interest occurs because a mining project interest originated from the pre-mining project interest. [Subsection 155-25(2)]
11.100 Where a termination day occurs because a mining project interest originates from the pre-mining project interest, the allowances that relate to the pre-mining project interest are not cancelled, rather they are inherited by the mining project interest. [Subsection 155-25(2) and sections 145-30 and 150-35]